Excise Evasion Prosecution Cannot Rest Solely On Departmental Proceedings: Himachal Pradesh High Court

The Himachal Pradesh High Court on 7 July held that criminal prosecution for alleged evasion of central excise duty cannot continue merely on the basis of departmental proceedings, show cause notices or penalty orders, unless independent evidence establishes the alleged evasion.

Justice Rakesh Kainthla dismissed the revision petition filed by the Excise Department and upheld the trial court's order discharging Seamx Industries and its directors from the criminal case alleging evasion of central excise duty. He held:

“This witness investigated the matter, but did not say anything about the evasion of the excise duty. He simply stated that excise duty was evaded by various methods without specifying the method. Therefore, his testimony does not establish the evasion of the excise duty.”

The case arose from allegations that Seamx Industries had evaded central excise duty by sending finished goods for galvanisation and clearing them without payment of duty. The Department relied on departmental proceedings, show cause notices and penalty orders to prosecute the company and its directors.

Before the High Court, the prosecution argued that the material collected during investigation and the orders passed by excise authorities were sufficient to frame charges against the accused.

However, the Court found that the prosecution witnesses failed to establish the alleged evasion of excise duty. It noted that most witnesses admitted that they had no personal knowledge of the facts and had relied only on departmental records, which were not produced before the criminal court.

It also observed that the investigating officer had also failed to explain the specific manner in which the alleged duty evasion had occurred. It noted that the officer merely stated that excise duty was evaded through various methods without specifying the method adopted.

Further, the Bench held that although strong suspicion may be sufficient at the stage of framing charges, such suspicion must be based on admissible material that can be proved during trial. It held that criminal courts cannot mechanically rely upon departmental findings while determining criminal liability. It noted:

“The Criminal Court had to apply its independent mind to determine whether there was evasion and if it was so, whether it constituted any criminal offence or not.”

Accordingly, the High Court upheld the trial court's order discharging Seamx Industries and its directors and dismissed the revision petition filed by the Excise Department.

For Petitioner: Mr Vijay Arora, Senior Counsel with M/s Hitansh Raj and Ankit Chauhan, Advocates

For Respondent: Rakesh Manta, Aryan Manta and T.K. Verma, Advocates